Yesterday was frustration from stem to stern. I had some unexpected free time, so I spent it trying to move this blog. That set off my usual tech headaches as, one more time, I prove I have no aptitude for anything labeled “easy” or “simple.”
My husband surprised me with a date to a hockey game. That’s love, because the man is not a fan. However, my team lost by one point, though those final minutes were nail-biters. I learned also that I can control my smart-assed tendencies when required. As we left, someone behind us was taunting a Penguins fan (I was incognito – my jersey is still in transit). He said, “Did we just move into first place? Wow, that must suck for Penguins fans.”
My knee-jerk reaction, which I managed to choke down, was “Oh, that’s okay. We have our cups to keep us warm.”
One ass-kicking avoided!
So let’s get back to our business plan. Now that you’ve spent yesterday planning out what it is you want to earn, let’s inject some more reality –
Expenses
There’ s nothing worse than planning a killer income only to realize you’ve forgotten to include what you have to pay out every month. So let’s dig in and get your expenses out in the open.
Taxes. The most necessary evil there is. The government expects at least 15 percent of your income each quarter to go toward your taxes. There’s a simplified formula that states 15 percent of 93 percent of your income. Make it simple – just put aside 15 percent right off the top of your total income. Be smart – put it aside for each check you receive. Better to pay yourself first than be surprised with a huge bill every three months.
Retirement. If you’ve worked in the corporate world, you’re used to someone contributing your money to retirement for you, maybe even matching it. Now you’re on your own. Find a percentage you’ll contribute to your own IRA fund and take that off the top of each check that comes in. I set mine at 5 percent, and I make transfers straight from my business checking account into my IRA.
Savings. How much do you want to have in your savings account? Find a percentage you can live with – maybe 5 percent again – and make that an automatic deduction from every check.
So far, you have about 25 percent or more of your total income going to paying the essentials (and yes, your savings is essential).
Bills. Here comes the fun part. Add up your utilities, credit cards, loans, etc. How much are you paying per month for these? That’s coming from your earnings. If you’re married or sharing bills with a partner, lucky you. Figure your portion into your expense column.
Business expenses. Here’s where you need to think farther ahead. Do you need a new computer? Printer? Website? Business cards? Are you looking to attend conferences or take business trips? List those things you have to have, those you need, and those you want. Find out what each will cost and tally it up.
Now that you know your expenses, you may want to revisit your earnings goal to make sure you’re going to earn enough to cover the expenses and to afford those things you want, like new shoes or a new car. Seeing it on paper can help motivate you toward planning for new business and maybe even convince you to raise that rate.
Are you planning to buy new equipment? Do you need to? How often have you considered your expenses as part of your income planning? What else do you include in your expense column?
Monday: Client Lists
14 responses to “Your Online Business Planning Session: Part Two”
Also, put aside the money for things you DON'T expect — like a large car repair. I had to replace my camera this year within a couple of days because it crapped out on me in the middle of a gig – -an expense I hadn't planned for. I had to do some rearranging to do it.
I'm seriously considering starting an account I call "The Retrograde Account", so when things go wonky, I've got the fallback.
Another thing to consider — which I probably should have mentioned yesterday — is figuring out what you need to let go of.
Sometimes we continue working in areas that are don't fulfill us because they're safe. While you have to make X amount of money, if you continue to work in situations that don't challenge/engage/support you on more than a simple financial level, your energy, productivity, and quality start to fall off, you start to get depressed and frightened, and it works into a downward spiral.
While,in the best of all possible worlds, you replace the income you'll lose BEFORE you jump, sometimes you won't get the new opportunities until you release what no longer works.
It's a tightrope, and there are so many variables.
If you stay in a toxic situation too long, eventually the control is taken away from you. You will be pushed if you don't jump, so you might as well make the active decision earlier in the process, before you feel completely poisoned, and keep it active as YOUR decision. It will improve your outlook, your confidence, and your skill-building to go after better jobs.
But without risk, you don't get either the rewards or the growth.
Health insurance. I know it is a big expense, but no matter how healthy you are, the unexpected does happen.
If your spouse has employer-sponsored health insurance, hallelujah! If not, get coverage at least for the catastrophic-look at high deductible plans and factor that into your savings.
Could be worse-you could be my age and stuck in that darn, you're old premium and not yet eligible for Medicare gap. 🙂
P.S. By the time I am eligible for Medicare, it won't be there. 😉
We put aside a small amount for retirement that isn't nearly enough.
Other than that, the only thing I really plan for is taxes. I put aside 30 percent, 40 after a certain amount. Every payment I get I transfer my tax into another account that I can't touch. The past two years we had enough money left over after my tax payment to take an all-inclusive trip down south, so I look at it like a nice tax refund.
Great series, Lori. I'm actually kind of looking forward to do doing the annual business plan review. Thanks for breaking it all down for us.
Cathy was right about health insurance. A writer friend has been on her husband's cushy policy for a long time, and now that they're contemplating divorce, she's looking at getting individual health insurance. She's used to running to the doctor over every little cough or hangnail, so good luck when she discovers how expensive that type of coverage really is!
If you own the home you work from, don't forget that part of your property taxes, utilities and maintenance may be deductible – the IRS has special forms for that stuff. I know some people don't like to claim the home office deduction if they plan to move at some point, or if their office space isn't clearly definably. But utilities are part of every office's overhead.
Because the bulk of my income comes from writing about TV, Uncle Sam tells me my cable bill, DVR, etc…. are legitimate expenses for me. (Yet my only TV is a 20-year old 19" CRT. Hey – it fits in the armoire – even a teeny-tiny wide screen wouldn't fit the same space.) So think about what services and items you need in order to do your job – they're part of your overhead, too.
Following up on my reply a day or two ago, one of the reasons I'm hoping to wrangle enough money for a new computer by year's end is because I can use another business deduction. That is, if clients pay up and new assignments roll in to cover February bills…Getting closer every day.
Good point, Devon. The car repairs are often a thousand a crack. Or…buy a car repair manual and learn how to do some of it yourself. I'm enjoying doing that. But I like that kind of thing. 🙂
Retrograde Fund – I LOVE it! LOL
Really great advice on letting go, too. I think that's hard for us writers. We see dollars, not problems. Focus on what makes us happy and the rest will follow…
Cathy, I'm minding a similar gap. 🙂 You're right – medical expenses could indeed be part of the planning. I'm fortunate to have a spouse with coverage, but for how long? Jobs are liquid these days.
Krista, that's a great bonus! Good thinking.
Retirement is an absolute bitch to plan for. According to whatever expert you're reading, we're all pretty much screwed. The idea is to amend our expectations and plan for whatever we can afford to plan for.
Jessica, feel free to post what you've got here. We can all help.
Love this series Lori… turn it into an ebook soon so we can buy it.
and congrats on your own domain name!
Devon's right. I let the control go. I was pretty sure what was coming, just not the sudden timing. Planning better this time. I hope.
Blogger ate my comment again? I swear it was there Friday.
I save a ridiculous amount for taxes (35-40%), but I use that padding to supplement my and my husband's retirement savings. Last year we were both maxed out on our IRAs, and we should be again this year. Sometimes there's left over, so that goes to our vacation fund, but that doesn't happen until after I make the first quarter estimate for the new year. (does that explanation even make sense?)
Liz
Saved it, Paula! Sorry.
Liz, that's a super idea. And it makes perfect sense the way you put it! Sounds like you've mastered paying yourself first!
Becky, I'm sure you'll do better next year. Those things that leave you hanging out to dry are rarely repeated because you learn from them. I know you – you're not going to settle. 🙂
Paula, you mean the Business Use of Home form. I'm practically wedded to it. 🙂 I was able to expand my square footage because now I'm storing files and supplies in a basement room.
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